Bollinger Bands (BB) refer to a technical analysis indicator whose main function is to inform traders about the changes that occur in the volatility of assets as well as to inform the simple or moving average of their valuation.
UOne of the most used indicators currently by cryptocurrency market traders and operators is the technical analysis indicator Bollinger Bands, or for its acronym in English BB.
This instrument consists of a set of bands that offer information about the trend and the volatility of an asset. It was developed in the 80s and its name comes from its creator, the financial analyst John Bollinger.
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How does BB indicator work?
El Bollinger Bands indicator is made up of three bands: upper, lower and middle band.
All the upper and lower bands they are drawn above and below the middle band respectively. These lines provide information about the activity of an asset in the market and reflect the way in which prices rise or fall around an average value.
As a rule, the middle line It is a simple moving average, that is, an arithmetic average, which offers information on the trends of the asset. From this, the upper and lower lines are calculated. The standard or initial setting of this indicator establishes the intermediate line in a period of x days (20 days is usually a typical setting). The upper and lower lines reflect the volatility of the asset in relation to its mean. Two standard deviations, 2 up and 2 down, are often used to reflect these lines.
Like other indicators, the initial configuration can be modified according to the needs of the operator. The reading or interpretation of this indicator is based on the fact that the lines react to the volatility of the market. So they expand when the volatility es high, that is, they move away from the middle line and the space between the upper and lower lines grows. And the opposite occurs if the volatility es baja, where the lines contract and approach the middle line.
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Is it common to use BB together with other technical indicators to complement the information obtained from the market?TRUE!
If it is quite common this practice among traders, especially the union of BB together with the MACD indicator. Remember that an indicator can give you information about a certain market characteristic, but the use of various tools can be counterproductive. Use them wisely to get the best out of them.
Indicator utility
Is one of the most used tools in technical analysis and can be applied to any type of market. This tool allows operators to observe the terms theoretical de oversold and overbought relative to a moving average over a given time period. Also, this indicator helps define vesting periodsAs well as detect the possible maxima y minimum market.
But like other analytical indicators, BB should not be used individually. Rather, it should be used in conjunction with other tools available in the market to set buy and sell targets. Or in your case, study the variations that have occurred in the market in a certain time.
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